9 signs that show that the South African economy is in deep, deep trouble

The current unemployment rate is one of the 9  telltale signs that the South African economy is in trouble. Our Minister of Finance will present the budget on Wednesday, 26 February 2020. Based on the promises made at the SONA do you think he will present a budget good enough to get us out of the trouble we are in?

9 signs that show  that the South African economy is in deep, deep trouble

On Wednesday, 26 February 2020 finance minister Tito Mboweni will present the national Budget amid the grimmest economy in a long time.

Judging from recent data, there is a very slim chance that the economy actually grew in the last quarter of 2019, which means that South Africa was in recession in the last half of the year.

Here are some of the biggest concerns: 

1. Government is spending R25 billion more a month than it is getting in

Government's monthly tax revenue minus its total expenditure has now reached a deficit of R25 billion a month. State coffers are being drained by constant bailouts of state-owned enterprises like Eskom and SAA, and the weak economy has choked government's tax income. 

Gross government debt has now reached 61% of the GDP - from only 24% a couple of years ago. Including the loan guarantees it has provided for debt-stricken SOEs, government debt has now reached 72% - a new record.

This means that government has no money to stimulate the economy, and that higher taxes will probably be announced in next week's Budget - with a further detrimental impact on the economy.

2. Manufacturing is faltering

Last year, South African factories manufactured less than in 2018 - and things got worse towards the end of the year, data from Statistics SA shows. Manufacturing production in December was almost 6% lower than a year before, with factory output in the vehicle industry down 25% from the previous year.

3. Land freight is plunging

The value of land freight - a clear indicator of business activity - declined at its deepest rate since March 2009 in the last quarter of 2019.

4. Eskom's ability to generate electricity is at its weakest level in 17 years.

Electricity production has reached its weakest levels in years.

While independent producers are picking up some of the slack, Mineral Resources and Energy Minister Gwede Mantashe has warned that load shedding will remain on the cards for at least the next two years.

Load shedding costs the economy from R1 billion to R5 billion a day, according to various estimates.

5. The construction industry is severely depressed

The sharp downturn in building plans shows that there is very little property development happening in South Africa.

A new report by the South African Property Owners’ Association (Sapoa) shows that office developments have slowed to the weakest rate since 2006 – it has halved in the last 18 months, with only 247,000 square metres under construction.

6. Almost half of people in the Eastern Cape, Free State and Mpumalanga are now unemployed....

The number of unemployed South Africans is now double the entire population of New Zealand

If the number of unemployed people in South Africa were a country, they would be the 88th largest country in the world (out of 235 countries), says independent analyst Johann Biermann. 

And the unemployment crisis looks set to get even worse after companies like Telkom, Glencore, Aspen, Samancor, Dion Wired and Sibanye-Stillwater announced deep job cuts in recent weeks.

7. The coronavirus could hit South Africa hard

According to research by Bloomberg Economics, South Africa will be one of the top ten worst affected countries by the coronavirus. China is South Africa's biggest export market, with almost R180 billion in South African good exported there last year. Nedbank has calculated that a 10% decline in exports from South Africa to China could hit GDP growth by 38 basis points. 

But that's not all: the South Africa tourism sector could also be at risk of losing R200 million in foreign currency spending – and 1,000 jobs, due to the impact of the coronavirus on Chinese tourism, according to a new estimate from PricewaterhouseCoopers.

8. Inflation is heating up - leaving less scope for interest rate cuts

The latest inflation numbers, for January, climbed to the highest level in seven months - due in part to the impact of pricier fuel.

This is still weaker than economists expected, but it may give the SA Reserve Bank pause when it considers whether to lower rates further when it meets again in mid-March. The monetary policy committee is already jittery about the impact of the expected Moody's downgrade on the rand. 

9. Consumers are increasingly relying on short-term loans and credit cards to get by

Unsecured credit (personal loans and credit cards) is growing fast as households are struggling to keep up with rising expenses and weaker incomes. 

One of SA's biggest debt counselling groups, DebtBusters, has seen a 50% increase in unsecured lending among high-income earners over the past four year.

This article was first published here